The Hang Seng Tech Index has fallen more than 20% from its peak in October 2025, entering technical bear market territory. Since the start of 2026, its performance has ranked near the bottom among major global asset classes. On February 26, the index plunged 2.87% in a single day, hitting a new low for the past year, reflecting weak market sentiment and drawing widespread attention.
Is the current adjustment in the Hang Seng Tech Index complete? When might a trend-driven recovery emerge? Which sub-sectors within the Hong Kong tech market warrant particular focus in 2026? Five fund managers shared their insights.
According to these managers, the recent downturn in the Hang Seng Tech Index represents a short-to-medium-term structural adjustment rather than a long-term weakening trend. Valuations for Hong Kong tech stocks are currently at historically low levels, with pessimistic sentiment largely priced in. This has enhanced their investment appeal, suggesting the sector may soon transition from a one-sided decline to a phase of volatile consolidation.
Looking ahead, fund managers highlighted that the core investment theme for Hong Kong tech stocks in 2026 will center around artificial intelligence (AI). This includes sub-sectors such as semiconductors, autonomous driving, large-scale AI models, and innovative pharmaceuticals, which possess the potential to reshape industry dynamics. As AI applications accelerate and profit expectations improve, the sector is poised for a trend-driven recovery.
The recent correction of over 20% in the Hang Seng Tech Index is viewed as a technically driven adjustment influenced by market sentiment, not a fundamental weakening. Contributing factors include profit-taking, geopolitical tensions, and uncertainties in global macro liquidity. From a global liquidity perspective, market perceptions of Kevin Warsh, a nominee for Federal Reserve Chair, as a "hawkish" signal have pushed the 10-year U.S. Treasury yield to 4.05%. Combined with a depreciating U.S. dollar, this has marginally increased valuation pressures. Additionally, major Hong Kong-listed tech firms like Alibaba and Tencent have announced substantial R&D investment plans, raising concerns among some investors about the stability of profit growth, thereby exerting downward pressure on asset prices.
Current valuations for Hong Kong tech stocks are below the 20th percentile of the past five years, indicating historically low levels. At this valuation, pessimistic sentiment has been largely released. From a fundamental perspective, leading tech companies are expected to see an inflection point in profitability, with consensus EPS growth forecasts for the index exceeding 40% for 2026. This trend may gradually be reflected in rising asset prices. Moreover, major companies have announced plans for significant R&D investments, providing momentum for improved profitability. Mirroring the trend in 2025, southbound capital and Hong Kong tech ETFs have shown a pattern of increasing purchases during declines, with net inflows exceeding HK$120 billion year-to-date, providing ample liquidity for Hong Kong tech assets.
Following the adjustment, the Hang Seng Tech Index's price-to-earnings ratio (TTM) stands at 21.0 times, highlighting attractive valuation metrics. Over the long term, the index continues to represent the core direction of China's new quality productive forces. The correction, which has lasted six months, has largely priced in negative factors such as policy uncertainty, intensified competition, and profit declines. The index's P/E ratio has fallen to the 15th percentile historically, with some core leaders trading at bottom valuations. Based on historical patterns, the current level may offer strong support, with limited room for further declines.
The adjustment in the Hang Seng Tech Index is likely nearing its end. The decline stems from market concerns about the uncertainty of AI strategy implementation, rather than deteriorating fundamentals, as companies generally maintain stable operations. Current valuations are relatively low compared to tech stocks in the U.S., Japan, and South Korea, enhancing their attractiveness. While hardware tech sectors in the U.S., Japan, and South Korea have risen in 2026, the Hang Seng Tech Index has continued to adjust since October last year, creating a clear contrast with global tech sectors. This suggests that pessimistic expectations may already be fully reflected.
Looking forward, the Hang Seng Tech Index may transition from a one-sided decline to a phase of volatile consolidation and trend-driven recovery. The Hong Kong market is likely to enter a "profit-driven" stage in 2026, presenting structural opportunities. Key factors to monitor include the impact of global liquidity conditions on capital flows and the performance of companies' annual and quarterly earnings reports. Risks to watch include geopolitical tensions, market sentiment, and the performance of global tech stocks.
As pessimistic sentiment largely dissipates, market disturbances may gradually ease, strengthening the investment and trading appeal of Hong Kong tech stocks. On the liquidity front, expectations for macro easing remain largely unchanged, supported by sustained inflows of southbound capital via Stock Connect, keeping valuation pressures relatively low. In terms of profitability, Bloomberg consensus forecasts project profit growth rates of 41.4% and 20.0% for the next one and two years, respectively, suggesting continued fundamental support. After the early-year adjustment, the index offers a high margin of safety. Policy support for various tech sub-sectors continues to intensify, safeguarding innovation breakthroughs for domestic tech companies. Potential risks include delays in expected Federal Reserve rate cuts and earnings disappointments.
The Hang Seng Tech Index has ample room for recovery. Amid accelerating global AI development, Chinese tech and internet companies are key participants. The core catalysts lie in AI implementation and cost control. If companies can effectively convert AI capabilities into revenue with reasonable investment, this could drive a trend-driven recovery for the index. Major risks include slower-than-expected AI R&D progress and excessive capital expenditures eroding profits. However, these are transitional challenges in the development process and do not alter the long-term upward trend. These companies benefit from traffic portals, stable cash flows, and solid fundamentals in advertising, e-commerce, and gaming, supporting continuous revenue and profit growth. Coupled with the expansion of domestic AI applications, the medium- to long-term logic remains clear, and short-term concerns are unlikely to change the overall upward trajectory.
Looking ahead, as overseas risk factors gradually ease, market focus is expected to return to the endogenous growth logic of the industry. The long-term trend of the Hong Kong market hinges on profit support, making future profit changes a key variable determining its direction. According to consensus forecasts, the Hang Seng Tech Index is expected to achieve robust profit growth in 2026. From an industry trend perspective, as subsidies for food delivery gradually phase out and tech companies experience endogenous growth, constituent companies are likely to see improved profit growth. Over time, as profit expectations materialize, the index is poised for a trend-driven recovery.
A potential catalyst for recovery could be a reduction in competition among major internet platforms, though achieving this may be challenging. Against the backdrop of slowing overall industry growth, maintaining short-term growth likely depends on争夺存量市场份额 (competing for existing market share). Additionally, the Hong Kong market faces disturbances from external variables, including developments in the Middle East, the approaching transition in the Federal Reserve Chairmanship, and subsequent U.S. midterm elections. In the short term, these events may act as headwinds to index recovery.
In 2026, the primary investment theme for the Hong Kong tech sector is expected to be AI, particularly sub-sectors with the ability to reshape industry landscapes. These include semiconductors and infrastructure, autonomous driving, large-scale AI models, and innovative drug R&D and services. Focus areas within Hong Kong tech include internet giants, smart vehicles, chip manufacturers, and innovative pharmaceuticals.
Companies with significant exposure to AI businesses are relatively favored, including hardware (such as optical communication, PCBs, optical fibers) and software (large-scale models or industry-specific models). These companies represent future industry directions to some extent. From a valuation perspective, hardware companies are relatively reasonably priced, offering good value. For software companies, valuations are generally high, and business models are still in early development stages, resulting in lower visibility and greater uncertainty regarding future evolution.
The investment narrative for the Hong Kong tech sector in 2026 will likely revolve around the industrialization of AI, the revaluation of platform economy assets, and structural opportunities driven by the shift between old and new growth engines under the trend of hard tech localization. Specific areas to watch include the AI application and computing power产业链 (industry chain), encompassing commercialization of large models, cloud services, and leading AI hardware companies; high-quality platform economy leaders; and promising hard tech companies in semiconductors, smart new energy vehicles, and consumer electronics innovation, which benefit from import substitution and industrial upgrading.
The dominant investment theme for the Hong Kong tech sector in 2026 is the entire AI industry chain. Key focus areas include platform companies with strong existing AI technology and implementation capabilities, and upstream "water sellers" benefiting from AI capital expenditures, such as AI chips, chip manufacturing, computing infrastructure, and database interconnectivity. AI-driven technological upgrades and earnings delivery will form the core investment logic for the sector.
The primary investment theme for the Hong Kong tech sector in 2026 is profit recovery. In 2025, profits for the Hang Seng Tech Index actually declined, significantly influenced by food delivery subsidies. In 2026, as these subsidies are gradually phased out and other tech companies maintain sound endogenous growth, profit recovery becomes the central theme. Secondly, the commercialization of AI applications and strategic positioning for traffic portals may emerge as core themes. For major tech internet giants, the key lies in accurately meeting genuine user needs within their self-built AI ecosystems to achieve synergistic effects and commercial closed loops. Among the constituents of the Hang Seng Tech Index, the tech hardware sub-sector has the potential to become the most prominent.